High Hampton: Three Pillars to Success in California’s Cannabis Industry
March 28th, 2018
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California is experiencing a ‘green rush’ following the legalization of adult-use cannabis with Proposition 64 and the roll out this year. According to BDS Analytics, the state’s retail cannabis market is projected to reach $3.7 billion by the end of this year and increase to $5.1 billion in 2019 as more dispensaries come online. There are many opportunities in the space, but some are better positioned than others to capitalize on the market over the near-term.
High Hampton Holding Corp. (CSE: HC) (FSE: 0HCN) has focused its efforts on three pillars to success: Building an experienced management team and board, developing an innovative business model to power long-term shareholder value, and executing on its vision.
Experienced Management Team
Many cannabis investments are businesses that pivoted from unrelated areas into the cannabis sector with little or no experience behind the wheel. In some cases, the teams behind these companies may have experience in one area, such as cultivation, but lack expertise in other areas that are necessary for success, such as regulations or finance. Investors should seek out companies with a mix of high-quality experience across the board.
High Hampton has a tremendous amount of experience in cannabis, political, legal, and the capital markets. CEO David E. Argudo is an elected city official with over eight years of experience consulting with municipalities looking to develop policies for cannabis. In addition to pioneering local cannabis tax measures in California, he has over 26 years of experience in pharmaceutical, cancer research, real estate, and mortgage financing.
President Richard Polanco is a former California State Senate Majority Leader and Founder of the California Latino Legislative Caucus in 1990. After spending a career advocating for medicinal cannabis in the state, he was an active proponent for Proposition 64 in 2016. The VP of Corporate Finance & Director, Christian Scovenna, and Chief Financial Officer & Director, Fiona Fitzmaurice, also bring tremendous financial and capital markets expertise to the team.
In mid-March, the company announced the addition of Paul Mann as Chief Operating Officer to support the next phase of aggressive business growth. Mann is a seasoned executive that has managed and successfully exited nine start-ups on three continents. With his successful track record and established business network, he is well-equipped to help the company organically grow its existing operations and pursue new acquisitions in the future.
Innovative Business Model
California is the largest legal cannabis market in the world with nearly 40 million residents and over a million medical cannabis patients. In fact, the market is estimated to be nearly seven times the size of Canada’s medical market and represents almost a third of North America’s legal cannabis industry. The state also attracts more than 260 million tourists each year that spend over $120 billion in the local economy.
Figure 1 – California’s Legal Cannabis Industry – Source: New Frontier Data & Arcview Market Research
The passage of Proposition 64 in November of 2016 did a lot more than just legalize adult-use cannabis – it created a framework for the cultivation and sale of all cannabis. Beginning on January 1, 2018, all cultivation of cannabis required municipal and state permits to legally operate. Many current growers do not meet the standards for these certifications and the state has been increasingly aggressive in shutting down non-compliant operations.
The supply of zoned and permitted areas to cultivate cannabis are in high demand and scarce, while many experienced cultivators have struggled to raise capital. High Hampton aims to purchase land and buildings in these zones to engage in royalty and leasehold agreements with tenants. In addition to consolidating the industry on its properties, the company aims to provide capital, compliance, licensing, and management consulting to brands and operators in California.
Initial Project in Place
Coachella is one of the most exciting municipalities in California to embrace the legal cannabis industry. Located about 30 miles east of Palm Springs, 72 miles east of Riverside, and 130 miles east of Los Angeles, the city was one of the first to pass an ordinance allowing the cultivation, processing, distribution, and testing of cannabis. The city has already approved over 120 acres and issued conditional use permits to several companies in the space.
High Hampton’s 100%-owned CoachellaGro asset is a 10.8 acre property located in the Coachella Cannabis Zone. Despite paying just $176,000 per acre in a transaction valued at $1.9 million, comparable land packages with a conditional use permit are valued at upwards of $5.5 million. Management is in the process of securing these conditional use permits (CUP) after submitting initial paperwork during the fourth quarter of last year.
The company’s management team believes that the permit will be awarded in the near-term and hopes to begin construction during the second quarter. Initial greenhouse facility construction will begin this year and initial cultivation could start as early as the fourth quarter of this year. By working with existing growers, the company is able to capitalize on an existing customer base and avoid the learning curve associated with new growers.
It’s also worth noting that the company has overcome many key hurdles facing legal operators. For example, energy costs tend to be a major concern among cultivators, but the company’s greenhouse plans use 65 percent less electricity than traditional greenhouses. This is done by combining natural sunlight with artificial lighting and ensuring that the entire environment is semi-sealed and tightly controlled.
High Hampton Holding Corp. (CSE: HC) (FSE: 0HCN) represents a compelling investment opportunity in California’s burgeoning cannabis industry. With a compelling land package in place, the company is well positioned to capitalize on the opportunity to work with existing cultivators and consolidate the state’s cannabis industry. Investors may want to take a closer look sooner rather than later given its ambitious timeline.
For more information, visit the company’s website or download their investor presentation.
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